Germany's property boom

EDITOR'S LETTER

Merryn Somerset Webb

Interest rates won’t stay this low

what if things have been even worse than the numbers show? Take house prices. The indices suggest the UK hasn’t seen a real crash. But that’s only true in the areas where most newspaper columnists live. Ask anyone on the outskirts of Newcastle: northern readers often tell me of houses that won’t sell even at 40% off 2007 prices. One emailed a fortnight ago with news of flats for £10,000.

Then there is inflation. We’ve all been conned into looking at the consumer price index (CPI) instead of the retail price index (RPI) as our default measure of inflation. Under CPI, inflation has been high enough. But it’s been even higher under RPI: look at inflation as we used to in the early 2000s, and it has been well above 3% for years.

Unemployment data has also not told the whole truth: there are huge numbers of income-free self-employed, and underemployment is a big problem. Even GDP might have fallen by more than 7%. Real GDP is calculated by taking nominal GDP and subtracting a ‘deflator’ to reflect inflation. But since 2007, the deflator the government uses has been rather smaller than the official measures. Use RPI instead, and Britain hasn’t left recession for years.